[Federal Register Volume 63, Number 136 (Thursday, July 16, 1998)]
[Notices]
[Pages 38444-38445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18963]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40191; File No. SR-DTC-98-5]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Relating to Shared Control Accounts
July 10, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 7, 1998, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II, below, which items have been prepared
primarily by DTC. The Commission is publishing this notice and order to
solicit comments from interested persons and to grant accelerated
approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The purpose of the proposed rule change is to allow DTC to make
shared control accounts available to its participants.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DTC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. DTC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\2\
---------------------------------------------------------------------------
\2\ The Commission has modified the text of the summaries
prepared by DTC.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
New York State recently enacted revised Article 8 of the Uniform
Commercial Code (``UCC''). Revised Article 8 gives priority in certain
situations to a pledgee that has control over pledged securities (or
other financial assets). According to DTC, a pledgee has control over
securities when it has the ability to have the securities sold or
transferred without further consent by the pledgor. The control of the
pledgee need not be exclusive. The pledgor can retain the right to
redeliver or make substitutions for the pledged securities.
Currently, when a participant pledges securities to the pledgee
account of a pledgee at DTC, the securities are under the sole control
of the pledgee. Therefore, only the pledgee can redeliver or release
the securities.
The purpose of the proposed rule change is to make shared control
accounts available at DTC as an alternative to the use of pledgee
accounts.\3\ As a result of the rule change, a DTC participant will be
able to establish a shared control account and to designate any DTC
pledgee as the pledgee for the shared control account. A pledgee will
have control over securities delivered by a participant to the
participant's shared control account at DTC because the pledgee will
have the ability to redeliver the securities without further consent by
the participant. However, the participant also will have the ability to
redeliver or to make substitutions for the securities without obtaining
the pledgee's release of the securities. DTC states that, except as
modified by the procedures for DTC shared control accounts,\4\ the
operation of a shared control account will be identical to the
operation of a DTC pledgee account and all DTC procedures applicable to
pledgee accounts are applicable to shared control accounts.
---------------------------------------------------------------------------
\3\ Pledgee accounts will continue to be available at DTC.
\4\ The procedures for DTC shared control accounts are attached
as Exhibit 2 to DTC's proposed rule change (File No. SR-DTC-98-5)
which is available for inspection and copying at the Commission's
Public Reference Room or through DTC.
---------------------------------------------------------------------------
DTC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because it is consistent with DTC's obligation to safeguard
securities and funds in its custody or control or for which it is
responsible.\5\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC does not believe that the proposed rule change will impact or
impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The proposed rule change was developed through discussions with
several participants. No written comments have been solicited or
received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3) of the Act requires that the rules of a clearing
agency be consistent with its obligation to safeguard securities and
funds in its custody or control or for which it is responsible.\6\ The
Commission believes that the rule change is consistent with this
obligation because the proposal should help facilitate the processing
of secured transactions through DTC's facilities. In addition, the
operation of shared control accounts will be essentially identical to
the operation of pledgee accounts which are currently available at DTC.
Therefore, DTC's experience in the operation of pledgee accounts will
help enable DTC to operate shared control accounts in a safe and
efficient manner.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
DTC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after publication
of the notice of this filing. The Commission finds good cause for
approving the proposed rule change prior to the thirtieth day after
publication of the notice because
[[Page 38445]]
accelerated approval will permit DTC to immediately make shared control
accounts available to its participants and to make its procedures
reflect revised Article 8 as recently enacted by the State of New
York.\7\
---------------------------------------------------------------------------
\7\ The staff of the Board of Governors of the Federal Reserve
System has concurred with the Commission's granting of accelerated
approval. Telephone conversation between Kristen Wells, Senior
Analyst, Division of Reserve Bank Operations, Board of Governors of
the Federal Reserve System, and Jeffrey Mooney, Special Counsel,
Division of Market Regulation, Commission (July 9, 1998).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of DTC. All submissions
should refer to File No. SR-DTC-98-5 and should be submitted by August
6, 1998.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-98-5) be and hereby is
approved on an accelerated basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18963 Filed 7-15-98; 8:45 am]
BILLING CODE 8010-01-M
